Abercrombie & Fitch 2009 Annual Report Download - page 55

INVESTMENTS
See Note 4, “Cash and Equivalents and Investments”.
RECEIVABLES
Receivables include credit card receivables, construction allowances, value added tax (“VAT”) receiv-
ables and other tax receivable balances.
As part of the normal course of business, the Company has approximately three to four days of sales
transactions outstanding with its third-party credit card vendors at any point. The Company classifies these
outstanding balances as credit card receivables. Construction allowances are recorded for certain store lease
agreements for improvements completed by the Company. VAT receivables are payments the Company has
made on purchases of goods and services that will be recovered as sales are made to customers.
INVENTORIES
Inventories are principally valued at the lower of average cost or market utilizing the retail method. The
Company determines market value as the anticipated future selling price of merchandise less a normal
margin. An initial markup is applied to inventory at cost in order to establish a cost-to-retail ratio. Permanent
markdowns, when taken, reduce both the retail and cost components of inventory on hand so as to maintain
the already established cost-to-retail relationship. At first and third fiscal quarter end, the Company reduces
inventory value by recording a valuation reserve that represents the estimated future anticipated selling price
decreases necessary to sell-through the current season inventory. At second and fourth fiscal quarter end, the
Company reduces inventory value by recording a valuation reserve that represents the estimated future selling
price decreases necessary to sell-through any remaining carryover inventory from the season then ending. The
valuation reserve was $11.4 million, $9.1 million and $5.4 million at January 30, 2010, January 31, 2009 and
February 2, 2008, respectively.
Additionally, as part of inventory valuation, inventory shrinkage estimates based on historical trends
from actual physical inventories are made each period that reduce the inventory value for lost or stolen items.
The Company performs physical inventories on a periodic basis and adjusts the shrink reserve accordingly.
The shrink reserve was $8.1 million, $10.8 million and $11.5 million at January 30, 2010, January 31, 2009
and February 2, 2008, respectively.
STORE SUPPLIES
Store supplies include in-store supplies and packaging, as well as replenishment inventory held on the
Company’s behalf by a third party. The initial inventory of supplies for new stores including, but not limited
to, hangers, frames, security tags and point-of-sale supplies are capitalized at the store opening date. In lieu of
amortizing the initial balances over their estimated useful lives, the Company expenses all subsequent
replacements and adjusts the initial balance, as appropriate, for changes in store quantities or replacement
cost. The Company believes this policy approximates the expense that would have been recognized under
accounting principles generally accepted in the United States of America (“GAAP”). Packaging and
consumable store supplies are expensed as used. Current store supplies, including packaging and consumable
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ABERCROMBIE & FITCH CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)